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Presuming that most companies started their initial expansion through organic growth, what are some of the common drivers or thoughts that kick in such that companies switch their attention to source for potential M&A opportunities?
The most common reason will be when businesses want to grow and expand. However, there could be other reasons, like seeking new technology, expand product / service line and have certain expertise.
Majority of corporations will seek M&As in order to gain a strategic advantage. The next big reason would to create a vertical or horizontal integration of the company. Finally, a company that has exhibited considerable organic growth, would want to invest its excess earnings in inorganic growth.
Expansion to new market, access to new technology/products, achieve economy of scale, reduce competition…etc
To add to the above comments, I have seen acquisition deals of oversees companies to relocate to to our country in an attempt to localize different product & services and contribute to the local economy. so far no failures.
There are good and bad reasons why companies M&A deals instead of organic growth. Too much cash, competitor elimination, and management hubris are among the bad ones. At the end of the day, M&A is only an instrument that should be used correctly. As with any project that the company takes it should have a positive NPV.
Companies pursue mergers and acquisitions for several reasons. The most common motive for mergers, for instance, increase in financial capacity–>lacking adequate financial capacity, a company may merge with another.
Companies should continuously consider M&A opportunities as part of the long-term strategy, focused on core competencies and close adjacencies. M&A may prove to be a viable option given other alternatives (e.g. “buy vs. build” approach), and the Strategy/Corporate Development teams will present options for consideration. Once a long-term strategy is approved, the M&A approach can begin.
M&A is a tactic to execute the corporate strategy. When a company plans to grow either expanding its market or launching a new product/service, instead of setting up a new local office or building a new product/service from the ground up, some companies choose to acquire or merge with another company that already has built-in infrastructure and market strategy, resulting in a faster time to market. M&A is one way to secure operations, product lines, customers, and industry positioning, but that doesn’t necessarily make it easy. The M&A process actually requires strategic thinking at its heart and planning, perseverance and patience to get it right.
A changing payor landscape is another reason for acquisitions – the larger the company the more leverage with payors. Investors are also looking at many splintered industries as opportunities for consolidation to realize economies of scale.
Ideally, for synergies. If it is for expansion, companies should evaluate clearly whether investing on their own would be better.
Companies will consider M&A opportunities whenever they found a growth prospects, to increase market shares through geographic expansion, adding new technologies or services. Factors such as synergies will play an essential role on this.
The missing bucket in M&A is Divestments- some companies divest in order to refocus on core businesses which they know well. This may present a situation where they sell a performing asset which simply does not fit into their business model but which can add geographic or product expansion to a buyer.
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